Concerns over Chinese economic growth weigh on industrial metals

SAN FRANCISCO (MarketWatch) — Gold futures dropped just over 2% on Tuesday, with analysts attributing the decline to profit-taking on the back of overall strength in the dollar after the prior session’s close at a three-week high for the metal.

Silver and copper, meanwhile, saw their prices take hits on concerns over China’s economic growth.

The fall in gold was due to profit-taking before the Easter holiday, with the decline also triggered by “buy stop losses and subsequent creation of intraday short positions,” said Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi, noting that huge long positions were created on Monday as gold managed to trade over $1,320.

But gold bulls “still have hope as long as it trades over March low” of $1,277.40, he said.

On gold’s failure to rally on reports of rising Ukraine tensions: ‘It is a case of once bitten twice shy.’
Chintan karnani, Insignia Consultants

“It is a case of once bitten twice shy,” said Karnani. Traders had gone long Monday on Ukraine but gold fell Tuesday, he said. “Now they are extra cautious going long. The rise (if any) will be slow and steady unlike the fall which was quite fast.”

Adam Koos, president and portfolio manager of Libertas Wealth Management Group, said he believes the “supply/demand equation is the primary driver with the ancillary issue being the dollar and “investors are ‘bored’ with the Ukraine.”

“It’ll probably take more ruthless news to see a significant reaction that would result in a flee to gold for safety,” he said.

Still, “the fact that gold has found itself bouncing around in the same old range is more positive than negative,” he said. “The more time that passes, the more the metal consolidates, the stronger the commodity gets (on a relative basis), and the higher the probability of near-term growth.”

Silver, copper sink

Silver led percentage losses on Comex Tuesday, with copper not that far behind.

“Silver and copper got slaughtered on speculation that Chinese growth numbers are much lower than official figures,” said Karnani.

Silver for May delivery
US:SIK4
sank 52 cents, or 2.6%, to end at $19.49 an ounce. High-grade copper for May delivery
US:HGK4
fell 6 cents, or 2%, to $2.99 a pound.

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Economists expect first-quarter GDP to be up about 7.3% from a year earlier, well below the fourth quarter’s 7.7% pace. Slower growth could mean more problems in debt repayment across the financial sector. Chian releases its latest growth numbers on Wednesday.

Meanwhile, despite robust credit growth, China reported on Tuesday lower-than-expected money-supply growth in March. At the end of the month, the broad M2 measure of money supply was up 12.1% from a year earlier, short of the median 13% increase forecast by economists, and February’s 13.3% rise.

Gold prices on Tuesday lost more ground after news that the U.S. consumer price index rose 0.2% in March, with so-called core prices also ticking up by 0.2%.

Elsewhere in the metals spectrum, palladium for June
US:PAM4
slid $15.60, or 1.9%, to end at $795.90 an ounce, while sister metal July platinum
US:PLN4
shaved off $22.80, or 1.6%, to $1,444.60 an ounce.

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